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I had purchased two adjacent plots in March, 2018 for ₹15 lakhs each. One was purchased in my name and the second one was purchased in my wife’s name. I had paid for both these plots. Now I want to sell both the plots and expect to get around ₹95 lakhs. I am a salaried person and my wife is home maker. How can we get exemption from long term capital gains on sale of these plots? I already have two residential flats in my name.
Purchase of the plot by you in your wife’s name will be treated as gift to your wife. As per the provisions of Section 64 of Income Tax Act, all the income arising on property gifted to your spouse is required to be added in your hands. So capital gains on sale of both the plots will be taxed in your hands. Broadly there are two provisions under which one can claim the exemption from long term capital gains. You can not claim exemption under Section 54F as you already have two flats in your name as the law permits one to have note more than one residential house at the time of sale of the asset in addition to one on which is being acquired to claim the exemption.
However, you can claim the exemption under Section 54EC by investing in capital gains bonds of specified financial institutions within six months from date of sale of these plots. Please note that there is a limit of Rs. 50 lakhs in respect of each financial year upto which you can invest in capital gains bonds. So you can claim exemption only upto 50 lakhs under Section 54EC in case your indexed long term capital gains for both the plots taken together exceeds fifty lakhs. You can plan to sell your plots in two financial years so as to be able to claim long term capital gains exemption for each plots in two different financial years by investing in capital gains bonds.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.
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